Sometimes you have an awesome idea – “I should drive down the West Coast of California from San Francisco to LA” – and then you just happen across a great way to make that happen – “What’s this Pacific Coast Highway, we’ve got here?”
Most of the time, though, you have a decent idea and you’re lost in the dark. Maybe the drive from Chicago to Syracuse is awesome, but how in the world do you avoid making it a tour of towns that have one intersection with a stoplight, forcing you to stop every five minutes.
I mean, really, LaGrange?
In business, this is your business plan. It’s the thing that gets you from the idea in your head to a way to actually make money. It’s the sort of thing that Twitter seems to be missing, but that Warren Buffett problem makes five of before he finishes breakfast.
While we all know we should have a plan, very few of us actually end up with one. Capterra, for instance, had a great idea and a talented leader. Then we had hard work, mistakes, growth, and thousands of dollars of credit card debt.
I love us, but you can do more to make your life a little less stressful. A business plan won’t get a dumb idea off the ground, but it can help a good plan perform even better. Here are some of the ways you can avoid common pitfalls and end up with a business plan that actual helps your business.
Describe your offering in detail
This may seem like a commonsense step, but there’s value to describing the product or service you’re offering in some detail. If you don’t know what it is you’re actually offering, nothing else in the business plan is going to be coherent.
I’m going to briefly rag on Twitter again.
If you look back at the company’s early days, it’s clear that there was some confusion about what the product did. It was called a “miniature blog,” something that’s not a social network, “a global platform for public self-expression and conversation,” and a social network. Now go and try to monetize that.
Having a clear picture of what you offer means having a clear picture of why people would buy from you. That means that you know what problem you’re solving or what hole in life you’re filling. A clear description of this in the business plan is going to make every other step easier.
Realize that you don’t know what you’re talking about
You want to sell widgets to 17 – 23 year old females in rural Rhode Island. Why? Did it seem like a good idea at one time? Is there some similar widget that you keep seeing on college campuses? Are you just pulling that demographic out of thin air because it’s the one that Mind of a Chef seems to appeal to?
Most people dive into a business without ever thinking about who is going to buy their product or service and why they would make a purchase. To cut you off before you even say it, your target audience can’t be “everyone.”
No one’s audience is everyone, and acting like anyone is a potential customer is going to lead you to flush marketing cash down the toilet, while working your way through the phone book. A business plan should spell out who you’re trying to reach and why you think they’re a lucrative audience.
In business terms, this is usually the “market analysis.” Market analysis is not justification. You don’t decide to sell burgers on Main St and then sit down to prove that it’s a good idea. You decide burgers seem like a good idea, then you see if there’s a hole in the market. Then you figure out where that hole is.
Before you look at the market, you have no idea if the product or service you want to offer is a good idea. This should come early on in the business plan, because a lot of the other parts of the plan are going to hinge on your market research.
Embrace the planning part of a business plan
A good business plan grows with your business. That’s because it’s a plan, and plans are subject to change.
The most important part of a plan is to set clear and measureable goals. Picking the right goals for your business is dependant on the products, services, and markets that you identified at the beginning of the process.
If you’re selling widgets, then you might make goals based on total sales or gross margin. If you sell a service, you might set goals based on average customer spend or repeat customers. If you sell software, maybe the total number of resubscribers is the right metric.
Before you make the actual plan part of the plan, you need to know what you’re aiming for. Goal setting should be fairly straightforward, because you did all that work setting out what you were looking to sell and to whom you were looking to sell it.
Once you have target metrics in place, you can start thinking about marketing, sales strategies, customer retention plans, promotions, and all the rest. Importantly, you should also be thinking about financial forecasts.
Being good at forecasting your income and expenditures is important. It’s the difference between paying your employees and not. Between having money set aside for lean times and having to work the night shift at Wendy’s. Between the best small business owners and the 50 percent that don’t make it through the first four years.
To really use the business plan and get the most out of your financial forecasts, you need to renew the plan on a regular basis. If you’re wrong about your assumptions, don’t just change the numbers to align with reality – figure out where it fell apart.
Finally, remember to be realistic. A goal that you can’t achieve isn’t a goal, it’s a pipe dream.
Final thoughts on business plans and a note on presentation
To get the most out of a business plan, you have to put the time in. While it can be difficult to carve out the hours required, the payoff can be massive. Though some folks treat business plans like a tool to get funding – and they can play that role – they’re really a way for you to get everything you know and believe about your business down in one place.
A business plan is the chance to tell the story of your company. Even if you’re ten years into a successful business *coughTwittercough*, you could still learn something from drawing a new plan up.
As a final note, style counts. You will be showing this to someone, in all likelihood. While there aren’t many strict rules – start with an executive summary and end with an appendix of detailed documents – there are some guidelines.
Make it legible. Make it look nice. For the love of all that is good and wholesome, have someone proofread it. You know at least one person who writes or reads a lot or is just kind of smart. Let them read it before you show it to anyone else.
AllBusiness has some good tips on basic formatting suggestions and the Small Business Association has a great list of detailed business plan topics to help you make it sing.
Your business plan can help you unlock the real value of your offering and can give you guidance when you feel lost. It’s a touchstone for you to turn to when competitors show up or the market is shaken. It’s a tool for explaining your vision and turning that into a reality.
Go make one. Get in the car and hop on the backroads. Take the route no one else is on and just enjoy the scenery. Good luck.
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